The Sixth
District Court of Appeal yesterday reversed an order striking down a San Jose
ordinance that would require developers to include units affordable to low and
moderate-income buyers whenever they build new housing in the city, or pay
in-lieu fees.

The court said
builders may yet prevail on their challenge, but that Santa Clara Superior
Court Judge Socrates Manoukian applied an incorrect standard when he
invalidated the “citywide inclusionary housing ordinance” adopted by the city
council in 2010.

The law would
require developers to offer 15 percent of units in new projects of 20 or more
units at below-market rates to persons with incomes of no more than 110 percent
of the area median income. Alternatively, they could pay in-lieu fees based on
the difference between median sale prices in the city and the cost of
affordable housing for eligible households; The California Building Industry
Association, which challenged the law, estimated the fee at about $122,000 per
house.

Manoukian said
San Jose had failed to show that new home construction creates affordable
housing shortages. The judge wrote that such “reasonable relationships” are
“constitutionally required.”

But Justice
Franklin Elia, writing for the Court of Appeal, said the trial judge appeared
to have erroneously applied case law dealing with housing mitigation and
development impact fees.

Such fees, the
justice explained, are viewed as a taking of private property under the
California Constitution if they exceed the amount reasonably necessary to
offset the deleterious effect of development. But the CBIA, he noted, “repeatedly
emphasized” that it was not alleging a taking because it was asserting a facial
challenge and the impact of the ordinance on individual developers was not
before the court.

The trial judge,
therefore, should have reviewed the ordinance under the substantially
deferential standard applicable to the government’s exercise of police powers,
Elia said.

“[T]his does not
entail unthinking acquiescence to the City’s stated goals,” he wrote, but the
plaintiff must show that the enactment is arbitrary, discriminatory, or
unrelated to a valid public purpose.

“To the extent
that evidence supplied by CBIA is material and relevant to its attack on the
Ordinance, the trial court is entitled to review it under the proper standard,”
Elia continued. “We will therefore remand the matter for that purpose. We again
emphasize, however, that it is CBIA’s burden to establish the facial
invalidity of the IHO, not the City’s to prove that it survives the
challenge….We thus leave it to the superior court to determine whether CBIA has
rebutted the presumption that the inclusionary housing conditions are
reasonably related to the City’s legitimate public purpose of ensuring an
adequate supply of affordable housing in the community. “

The case is California
Building Industry Association v. City of San Jose (Affordable Housing
Network of Santa Clara County), H038563.